Earned wage access provider Wagestream raises £20 million for market share expansion
Fueling its market expansion, U.K. earned wage access startup Wagestream has raised £20 million (about $25 million) in a Series B fundraiser from several VC firms.
The Series B round was led by early-stage venture capitalist Northzone and joined by other VCs including QED Investors, Latitude Investors and Balderton Capital. Wagestream stated that with the Series B, its total investments raised to-date have reached £65 million (about $82 million). The funds will be used to expand domestic market share as well as fuel an international expansion effort.
“We are excited to continue our investments into Wagestream as we were one of the first investors in the company,” said Nigel Morris, co-founder and managing partner of QED Investors. “The team is terrific and doing amazing stuff. They are gathering momentum in gaining market share in the U.K. and plan to expand to continental Europe. The Wagestream team has the wind at their back as consumer demand for this service grows.“
Wagestream is one of a growing number of startups designed to deliver early, earned wage access to millions of hourly and gig workers in the U.K. so that they can pay bills on time and avoid falling into the hands of predatory lenders. Just last May, investors including QED poured £15 million (about $19 million) into Wagestream on a Series A round. The Evening Standard reported at the time that Wagestream had 115,000 active users on its mobile app-based platform.
In June, Manchester, U.K.-based rival Orka Technology Group launched Orka Pay, an early wage access tool for gig workers to access their wages before payday.
Earned wage access appears to be a growing, global phenomenon with several companies in the U.S. also gaining momentum such as PayActiv, Ceridian, Earnin, Branch, DailyPay and others. Wagestream uses the term “income streaming” as it allows a worker to tap into their pay as needed to pay bills. A key driver is that for many hourly and gig-based workers the traditional bi-weekly or monthly pay day does not work as that’s not how their expenses are incurred. This leaves them subject to predatory payday loans, frequent bank overdraft fees and stuck in a vicious debt trap.
The Consumer Financial Protection Bureau (CFPB) found that about 9% of all U.S. bank account holders pay over three-quarters (78.7%) of all overdraft fees. The CFPB findings illustrate how easy it is to fall into a vicious, never-ending cycle of overdraft fees just to pay bills that come due outside of the normal pay date.
In a separate interview discussing the U.S. startup PayActiv, Richard Crone, principal of Crone Consulting, shared that “the fully loaded cost to acquire a new DDA is $300 and it typically generates between $150 and $230 per year, half from debit interchange and half from overdraft fees.”
The model Wagestream offers to HR departments is a menu-based approach to earned wage access with limits and rules that can be customized to each employer. The staffer, whether a full-time employee or gig worker, is able to access a percentage of their earned, but not yet paid wages before the date of the payday.
The £1.75 fee to access earned wages is paid by the employee. Morris likened the cost to an ATM fee and said that it is accessing earned wages and therefore it is not a loan.
“Earned wage access is a category killer for other financial services,” said Morris. “It’s a universal need of employees and gig workers around the globe. That’s why we have invested in companies similar to Wagestream in other countries such as Minu in Mexico, Xerpa in Brazil and Rain in the U.S.”
QED Investors has a strong focus on helping the global underserved consumer segment, as Morris noted that traditional banks have little interest in serving customers with low credit scores and little money. Other investments in the QED portfolio include U.S. challenger bank Current, Remitly, Prosper, SoFi, Credit Karma and Zopa.